Retaining Wall—need advice

I bought this house about six months ago and the winter has not been kind to this retaining wall. It's deteriorated badly in that span.

The image above has some rough measurements. In your opinion, what is the best way to rebuild this wall?

-I have kids (and us) so have concerns about toxins in pressure treated lumber.

-Cost is an issue, but willing to pay if that's what it takes to do it correctly. The wall will have low visibility. We really like the look of stone, real or the interlocking ones you can buy at Lowe's.

Is this something I can tackle (never done it before, don't really have the right tools)? I've done several days of internet research and it seems like the project has some complexity to it, I'd love to tackle it just to learn but I also have a lot of time constraints these days.

Let me know if you need more details to give better advice on my situation.

Thanks in advance.